Fractional Share Processing Unit for Real-Time Order Execution
Find Innovative SolutionsGenerate Solutions
Solution Overview
Problem
Brokerage firms face challenges in managing fractional inventory positions in real-time, leading to increased costs and risks due to batched orders, difficulty in executing fractional share transactions, and inefficient portfolio rebalancing, especially in micro-investing scenarios, which can result in overbuying or overselling and deviations from desired portfolio allocations.
Innovation Solution
Implementing a fractional share processing unit (FPU) to manage fractional inventory in real-time, execute fractional and notional-based orders efficiently, and allocate fractional share components to managed accounts, ensuring that buy or sell orders do not exceed requested amounts, using a system that includes a first and second queue for fractional and whole share components, and a fractional share database for storage.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Ease of manufacture
If brokerage firms use batched orders to manage fractional inventory, then order execution is simplified, but real-time management capability is lost and trading costs increase
Solution Approach 1:
The system segments order processing into two distinct queues: a first queue for fractional share components and a second queue for whole share components. This segmentation allows fractional inventory to be managed separately and efficiently, enabling real-time processing while maintaining execution simplicity.
Solution Approach 2:
The patent introduces an intermediary system that acts as a broker between incoming orders and the execution engine. This intermediary processes orders through the dual-queue system, managing fractional and whole share components separately, thereby enabling real-time management without complicating the overall execution process.
2Reliability
If brokerage firms predict inventory requirements based on past trading activity, then order fulfillment is improved, but proprietary order volume to the street increases and trading costs rise
Solution Approach 1:
The system enables the brokerage firm to serve itself by maintaining an on-demand fractional inventory that automatically fulfills fractional share requests. This self-service approach reduces the need for predictive ordering and proprietary trades with external markets, thereby lowering trading costs while maintaining reliable order fulfillment.
3Duration of action of stationary object
If whole shares are purchased and held as inventory positions, then future fractional share needs are anticipated, but portfolio allocation precision deteriorates and rebalancing efficiency decreases
Solution Approach 1:
By segmenting the inventory into fractional and whole share components stored in separate queues, the system enables precise tracking and allocation of fractional shares. This segmentation allows for accurate portfolio allocation and efficient rebalancing without requiring whole share holdings, thereby maintaining precision while reducing inventory holding requirements.
4Device complexity
If fractional components are accumulated until a full share is formed, then inventory management is simplified, but transaction responsiveness is reduced and client order execution is delayed
Solution Approach 1:
The system eliminates the need to accumulate fractional components by creating a dedicated first queue for fractional share components. This segmentation allows fractional shares to be executed immediately upon receipt of client orders, dramatically improving execution speed while keeping inventory management simple through automated queue processing.
5Ease of operation
If notional-based orders are processed without real-time fractional share capability, then order processing is simpler, but overbuying or overselling occurs and portfolio allocation accuracy deteriorates
Solution Approach 1:
The patent introduces an intermediary processing layer that sits between notional-based order receipt and execution. This intermediary converts notional amounts into precise fractional and whole share components, routing them through the appropriate queues. This maintains operational simplicity for clients while ensuring accurate order execution without overbuying or overselling.
Data Source
Figure 1
Figure 2~3
Figure 4
AI summary
Methods for executing fractional shares transactions are disclosed. In one aspect, a method for executing a fractional-based buy or sell order may be performed by a fracker processing unit (FPU) configured with an on-hold queue, in-progress queue, fracker balancer, and fractional share database, where a fractional share component of the buy or sell order is subjected to the method. In another aspect, a method for executing a notional-based buy order may be performed by FPU, where an estimated fractional share component of the notional-based buy order is subjected to the method. In another aspect, a method for executing a executing a notional-based sell order may be performed by FPU, where a quantity of an executed whole share component of a notional-based sell order is subjected to the method. In another aspect, a method for executing fractional shares transactions may be performed by in part, providing cleanup account shares to FPU.